Schick Construction and Cartage Limited v Auckland Council
[2015] NZHC 2722
•4 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-001726 [2015] NZHC 2722
BETWEEN SCHICK CONSTRUCTION AND
CARTAGE LIMITED Plaintiff
AND
AUCKLAND COUNCIL First Defendant
AND
CARDNO (NZ) LIMITED Second Defendant
AND
CROMBIE LOCKWOOD (NZ) LIMITED
Third Defendant
Hearing: 19 October 2015 Appearances:
S J Chatwin and S E Greer for Plaintiff/Respondent
K F Quinn for First Defendant/Applicant
No appearances for other DefendantsJudgment:
4 November 2015
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
This judgment was delivered by me at 3.30 pm on 4 November 2015 pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Chatwin Legal Ltd, Hamilton.
Auckland Council, Legal Services, Auckland. Morrison Kent, Wellington.
Gilbert Walker Lawyers, Auckland.
SCHICK CONSTRUCTION AND CARTAGE LTD v AUCKLAND COUNCIL & ORS [2015] NZHC 2722 [4 November 2015]
Introduction
[1] Early in 2008 the Auckland City Council contracted with Schick Construction and Cartage Limited (Schick) to undertake work in Cliff Road, St Heliers, to stabilise sections of the road due to ongoing erosion of the adjacent cliff face. By the same contract the stormwater system adjacent to the area of the required stabilisation was to be upgraded.
[2] During the course of this work on 17 or 18 July, Schick accidentally drilled through a stormwater pipe and then filled it with concrete. The concrete blocked the pipe, then set. Early on 19 July 2008 there was heavy rainfall, and as a result of the stormwater pipe being blocked, groundwater rose significantly, blowing out the manhole lid on the stormwater piping system, floating a swimming pool out of the ground and causing flooding in the basement of an adjacent property, and flooding in the kitchen of another adjacent property. Mr Pillay, who was at the time employed by the Transport Infrastructure Group within the Council, says there was a real possibility that the whole of Cliff Road would collapse and, as he put it, the Council could “lose the suburb”. The claim now before the Court arises from the events which took place next.
[3] By the time the cause of the rise in groundwater level was identified, the concrete in the pipe had set. Removal of it proved to be difficult. In the end a replacement pipe was installed. The pipe has a larger diameter and therefore a greater capacity than the damaged pipe. Although Schick accepts responsibility for the work which gave rise to concrete being pumped into the pipe, it claims from Auckland Council, as successor (as it argues) to the obligations of the Auckland City Council, the cost of upgrading the piping system and other attendant expenses it incurred.
History of this proceeding
[4] This proceeding was filed on 11 July 2014. The first defendant in the initial proceeding was Watercare Services Limited, a council controlled organisation pursuant to the Local Government Act 2002. The present first, second and third defendants were then the second, third and fourth defendants respectively.
[5] On 2 September 2014 the plaintiff filed a first amended statement of claim. Watercare Services Limited was no longer named as a defendant, though no step had been taken to discontinue the claim against that company. A second amended statement of claim was filed on 9 September 2014. Again, Watercare Services Limited was not named as a defendant. At the hearing I made an order, with Schick’s consent, striking out the claim against Watercare, without costs.
[6] None of these pleadings were served on Auckland Council until 16 June
2015. When the documents were served, Schick gave initial disclosure.
The applications before the Court
[7] Auckland Council applies for an order staying or dismissing the proceeding against it for want of prosecution by Schick, based on the delay of some 11 months between the filing and service of the initial proceeding, without explanation or any sound reason. Alternatively, it seeks an order striking out four causes of action because Schick ought to have sued Auckland Transport, a Council Controlled Organisation (CCO) established by the Local Government (Auckland Council) Act
2009 (LGACA).1 Whilst Auckland Council accepts that the former Auckland City
Council, acting through its Transport Infrastructure Group, contracted with Schick, it says that all issues arising under that contract and under any arrangements made as a result of the flooding which occurred are now the province of Auckland Transport.
Changes to local government in Auckland
[8] To place the pleadings in context it is necessary to briefly summarise the changes in the administration of local government in Auckland, that are relevant to this case, arising from the LGACA and related legislation, all of which has come into force since the events giving rise to this case.
[9] Prior to these changes, matters relating to transport in the area under the control of the Auckland City Council were dealt with by the Council itself, and for that purpose it had established a department called the Transport Infrastructure Group. It was that group which was instrumental in the Council contracting with
Schick for the works required on Cliff Road. Since the LGACA came into force and the Auckland Council was established, transport responsibilities have passed to Auckland Transport.
[10] The purpose of Auckland Transport is “to contribute to an effective, efficient, and safe Auckland land transport system in the public interest”.2 Auckland transport system is defined in s 37 to mean roads, public transport services, and public transport infrastructure owned at the time by the Council or under the control of Auckland Transport. Excluded are state highways, railways, off street parking facilities under the control of the Council, and airfields.
[11] On 1 November 2010 the Local Government (Tamaki Makaurau Reorganisation) Council-controlled Organisations Vesting Order 2010 came into force. Clause 12 provides:
12 Vestings in Auckland Transport
(1) On and from 1 November 2010, the assets, liabilities, and other matters described in subclause (2) vest in or otherwise attach to Auckland Transport.
(2) The assets, liabilities, and other matters of each existing local authority that –
(a) are vested in or otherwise attached to the local authority immediately before the close of 31 October 2010; and
(b) at that date and time would fall within the definition of Auckland transport system if Part 4 of the Local Government (Auckland Council) Act 2009 were in force at that date and time.
(3) Without limiting subclause (2), on and from 1 November 2010 the following vest in or otherwise attach to Auckland Transport:
(a) the property specified in Schedule 1; and
(b) the assets, liabilities, and other matters vested in or otherwise attached to each existing local authority immediately before the close of 31 October 2010 in respect of the infrastructure within Auckland associated with buses, ferries, trains, and other transport that runs to a schedule and is available generally to the public.
(4) Despite subclauses (1) to (3), the following do not vest in or otherwise attach to Auckland Transport:
(a) any road within the district of each existing local authority; and
(b) the rights and liabilities of each existing local authority under any contract or agreement that meets the criteria in subclause (2) or (3)(b), if the rights and liabilities are inconsistent with Auckland Transport’s status, functions, or powers under Part 4 of the Local Government (Auckland Council) Act 2009.
(5) In subclause (4), road has the same meaning as in section 315 of the
Local Government Act 1974.
[12] At the time of the events giving rise to this case, water in Auckland was the responsibility of another CCO, Watercare Services Limited. That remained the position until 1 July 2015, from which date the Auckland Council and, with certain exceptions, another CCO of the Auckland Council assumed responsibility.3
[13] For present purposes Auckland Council accepts that it is its responsibility to respond to the first three causes of action which are directed at actions taken by Watercare, as distinct from the fourth to seventh causes of action which are directed at actions alleged on behalf of the Auckland City Council, in the guise of its Transport Infrastructure Group. No further reference need be made to the first to third causes of action beyond noting that they essentially mirror the fourth, fifth and sixth causes of action, respectively. By this means Schick sues Auckland Council in respect of the actions of those who dealt with the problem in Cliff Road shortly after it occurred, whether they were representing Watercare or the Auckland City Council Transport Infrastructure Group. Essentially Schick says that Auckland Council bears the liabilities of both former organisations and thus is liable for the losses it says those organisations have caused. The nub of the issue raised on the present application, apart from delay, is whether Auckland Council has assumed all the liabilities of the former Auckland City Council arising from the events which occurred, or whether some of those liabilities have been assumed, as a matter of law, by Auckland Transport.
[14] As this is an application to strike out, this question must be considered in the context of the principles which apply to applications of this kind.
Principles of law on an application to stay or strike out
[15] For her argument that this proceeding should be stayed, or dismissed, for want of prosecution, Ms Quinn relies on r 5.72 of the High Court Rules:
5.72 Prompt service required
(1) The statement of claim and notice of proceeding must be served –
(a) as soon as practicable after they are filed; or
(b) when directions as to service are sought, as soon as practicable after the directions have been given.
(2) Unless service is effected within 12 months after the day on which the statement of claim and notice of proceeding are filed or within such further time as the court may allow, the proceeding must be treated as having been discontinued by the plaintiff against any defendant or other person directed to be served who has not been served.
[16] As will be apparent, this rule does not provide any sanction for failure to comply with it. Sanction, therefore, falls to be considered in terms of rr 1.5, 15.1 and the Court’s inherent jurisdiction.
[17] These issues were discussed by the Court in Body Corporate 348047 v Auckland Council. In that case the Court found that there had been a breach of the direction in r 5.72, treated it as a want of prosecution of the plaintiff’s case, and therefore considered the application of r 15.2. Accordingly, the Court referred to Lovie v Medical Assurance Society of New Zealand Ltd, where the Court decided that for a proceeding to be dismissed for want of prosecution, it must be shown that there has been an inordinate delay which is inexcusable, and which has caused
serious prejudice to the defendant.4 The Court also noted that in Commerce
Commission v Giltrap City Ltd, the Court of Appeal emphasised the need to stand back and consider the overall interests of justice when deciding whether a proceeding should be allowed to proceed after inordinate, inexcusable delay causing serious prejudice to a defendant.5
[18] For her argument that the claim against Auckland Council should be brought, instead, against Auckland Transport, Ms Quinn relies on r 15.1. This provides, to the
extent presently relevant, that the Court may strike out all or part of a pleading if it
4 Lovie v Medical Assurance Society of New Zealand Ltd [1992] 2 NZLR 244 (HC) at 248.
5 Commerce Commission v Giltrap City Ltd [1997] 11 PRNZ 573 (CA).
discloses no reasonably arguable cause of action, is frivolous or vexatious, or is otherwise an abuse of the process of the Court. The Court may, at the same time, strike out the proceeding in which the statement of claim is filed, or it may stay all or part of the proceeding on such conditions as are considered just.
[19] The principles to be applied on an application to strike out under r 15.1 of the High Court Rules are well-established.6 Pleaded facts, whether or not admitted, are assumed to be true apart from allegations which are entirely speculative and without foundation. The cause of action pleaded must be clearly untenable. In Couch v Attorney-General, Elias CJ and Anderson J said: “It is inappropriate to strike out a claim summarily unless the Court can be certain that it cannot succeed”.7
[20] The jurisdiction is to be exercised sparingly and only in clear cases, reflecting reluctance on the part of the Court to determine a claim or defence short of trial. For all that, the jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument.8
The fourth to seventh causes of action
[21] Schick alleges that once immediate control measures had been undertaken to remedy the lack of a stormwater outlet, the Auckland City Council advised it that it wished to take the opportunity to upgrade the damaged 375 millimetre stormwater pipe to a new 450 millimetre pipe, rather than replacing the existing pipe with a similar one. Schick then says that on or about 3 September 2008, Watercare and/or the Auckland City Council entered into an agreement with Schick by which Watercare and the Council agreed with Schick to contribute towards the costs of this work, in certain shares. This is described as “the costs sharing agreement”. Schick says that it undertook the agreed work, but Watercare and the Council have refused to pay any part of the cost.
[22] The causes of action against Auckland Council are:
6 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA); Couch v Attorney-General
[2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ.
7 At [33].
8 Couch v Attorney-General, above n 6.
(a) Fourth cause of action – breach of the costs sharing agreement;
(b)Fifth and alternative cause of action – estoppel based on representations by the Auckland City Council that it would pay a reasonable share of the costs of the upgrading work, or would pay a pro rata share of those costs in proportion to the length of pipe which was determined to be undamaged as a result of the events in July;
(c) Sixth and alternative cause of action – Schick claims payment on a quantum meruit basis for reasonable compensation for a sum between the cost of repairing the damaged pipe, and completing the upgraded piping system; and
(d)Seventh cause of action – a claim for payment of retentions under the original contract between Auckland Council and Schick which Auckland Council has not paid to Schick.
Discussion
Stay or dismissal for want of prosecution
[23] The only explanation given on behalf of Schick for the proceedings not being served on Auckland Council, not only when first issued but for a period of 11 months during which two further amended statements of claim had been filed, is given by the managing director of Schick, Mr Peoples. He says:
As the managing director of Schick I have been very busy since 2009. I always intended that Schick would pursue a claim in relation to the costs of the Upgrade Work but I have found it difficult to find the time to provide Schick’s lawyers with the necessary information and instructions to enable them to pursue the claim. In early 2014 my lawyers informed me that the six year limitation period was due to expire. Nevertheless, I found it difficult to find the time to provide Chatwin Legal Limited (“CLL”) with instructions. Finally, I was able to provide CLL with instructions to pursue a claim in the High Court on 9 July 2014. CLL was able to file the proceeding on 11 July
2014. Subsequently CLL sought further information and documents from me. I had difficulty in locating all of the documents relating to the matter. It appeared that some of the relevant documents had been misplaced or deleted. I provided further documents to CLL on more than one occasion after 11 July 2014 as and when I was able to locate them. I provided the last lot of documents to CLL in June 2015. On receipt of these documents CLL was able to serve the proceeding on the defendants along with a number of
relevant documents by way of initial disclosure. Auckland Council was served on 16 June 2015.
[24] The first part of this explanation relates to the delay of nearly six years in filing the proceeding at all. The latter part seems to relate to the obligation of a plaintiff to provide initial disclosure when serving a proceeding. For Schick, Mr Chatwin gives as the cause for the delay in service the need to comply with this obligation. He notes that in R v Holmes Ex parte Sherman, the Court described the phrase “as soon as practicable”, as “a slightly elastic concept which must take
account of the availability of police manpower, transport and Magistrates Courts”.9
[25] Rule 8.4 provides that after filing a pleading, a party must serve on other parties, at the same time as the service of the pleading, a bundle consisting of all documents referred to in that pleading and any additional principal documents in the filing party’s control which that party has used when preparing the pleading and on which it intends to rely at the trial or hearing. The only exception is where the circumstances make it impossible or impracticable to comply, and a certificate to that effect, setting out the reasons why compliance is impossible or impracticable signed by counsel for the party, is filed and served at the same time as the pleading.
[26] This rule was brought into force by the High Court Amendment Rules (No. 2)
2011. As all counsel practising in this court know, its purpose is to give parties an early opportunity to assess the strength of their opponent’s position, to help to narrow the issues requiring resolution, and to facilitate settlement.10 The obligation may be enforced, if necessary, by an order of the Court under r 7.48.
[27] The explanation given by Mr Peoples would have readily formed the basis for Schick’s solicitors and counsel, who were engaged in the proceeding, to have taken the step of filing a certificate instead of initial disclosure, on the basis that the circumstances made it impracticable for Schick to comply with its initial disclosure obligation. That course was not taken. Instead, the Auckland Council was left
completely in the dark while the pleadings advanced into a third iteration, and
9 R v Holmes Ex parte Sherman [1981] 2 All ER 612 at 616.
10 Glaister v Harris [2014] NZHC 1285 at [33]-[35].
Mr Peoples finally got around to finding the documents that he thought Schick ought to disclose.
[28] The excuse given by Mr Peoples is, in my judgment, without merit. Quite apart from it stretching credibility, which I put to one side, the law is that the documents which had to be disclosed initially were those referred to in the pleading, and others which had been used when preparing the pleading, though the latter need only be disclosed if they are documents which the party intends to rely on at the trial. Obviously, therefore, all documents which had to be disclosed under r 8.4(1) were in the solicitor’s hands before the proceeding was filed and initial disclosure could have been given. As well, Schick’s solicitors, not Mr Peoples personally, would, in the ordinary course of events, have attended to service as part of their role. The Auckland Council is not difficult to locate.
[29] I therefore find that there has been a manifest breach of the obligation in r 5.72 to attend to service of the statement of claim as soon as practicable after filing. The inaction of Schick and its advisors in this case stretch this elastic concept to breaking point.
[30] Ms Quinn says that as a result, Auckland Council has suffered significant prejudice as the Council cannot now join any other party involved in the Cliff Road contract as a defendant or as a third party, as claims against them would now be statute barred. She names certain potential parties and in general terms describes the bases on which liability might be established. Mr Chatwin says the alleged claims are too vaguely described to have any force in relation to this application. In my view, however, it is unnecessary to canvass the opposing arguments of counsel on this point because of the view I have reached, standing back and looking at the overall justice of the case, in relation to this aspect of Auckland Council’s application. In coming to my conclusion I have given the Council the benefit of any doubt there may be in relation to whether it may have been deprived of its right to join further parties to this proceeding.
[31] The first factor that has led me to the conclusion that this case should not be stayed or dismissed for want of prosecution is the legislative framework concerning
limitation of causes of action. It is open to a plaintiff to file a proceeding right up to the last day before the expiration of a limitation period. Even if then served immediately on the day before the expiration of the limitation period, there is virtually no prospect of a defendant seeking to add further defendants or join a third party before the expiration of the limitation period. Because limitation periods expire on filing, in many cases filing on the last day will in itself result in a defendant not having the rights asserted by Auckland Council in this case, even if the proceedings are then served within a relatively short period. Thus, the legislative framework itself accepts that defendants may not always be able to proceed against other parties as they may wish.
[32] The second factor I take into account is that Schick’s solicitors filed the
proceeding and would or should have been aware of Schick’s obligations under r
5.72, and of their ability to sign and file a certificate instead of providing initial disclosure. At a practical level, responsibility for the lack of service might, on the information presently before the Court, lie at least in part on Schick’s advisors, rather than on Schick itself.
[33] The final factor I take into account is that r 5.72 does not provide a sanction for non-compliance. Weighing all these factors against the prejudice to the Council, I am not prepared to take the draconian step of depriving Schick of its right to litigate, on the basis of its failure to comply with r 5.72.
Has Schick sued the wrong party?
[34] The argument for Auckland Council is derived from cl 12 of the Local Government (Tamaki Makaurau Reorganisation) Council-controlled Organisations Vesting Order 2010.11 The Council says that if there is any liability to Schick (which it denies) this is a liability of Auckland Transport because the liability is within r 12(2). It says this would be a liability within this subclause, because it is within the definition of the phrase “assets, liabilities and other matters” in cl 4(2) of the vesting
order, being a liability or obligation of a terminating organisation, the Auckland City
11 At [11] above.
Council. It also says that, so far as a contract may be proved, that is a contract of a terminating organisation.
[35] It is necessary to consider exactly what is alleged in the four causes of action. Causes of action four, five and six do not rely on the Cliff Road contract at all. Rather, they rely, respectively, on an alleged costs-sharing agreement and, in the alternative, quantum meruit, and, in the alternative again, estoppel. Only the seventh cause of action relates to the Cliff Road contract. I will return to that shortly.
[36] So far as the other causes of action are concerned, it is necessary to determine which party entered the contract, or which party may have acted in such a way as to give rise to an estoppel, and which party might be liable, for reasons pleaded, on a quantum meruit claim. In each case Schick specifically pleads actions of the Auckland City Council. So far as the fourth cause of action is concerned it says that Schick and the Auckland City Council entered the costs sharing agreement. In relation to quantum meruit it says that Auckland City Council requested the upgrading work for which a quantum meruit is claimed. In relation to estoppel it is pleaded that the Auckland City Council made the representations relied on, and later resiled from them. Schick does not give particulars in any of these three causes of action of who is said to have entered the contract, or taken the other relevant actions as the case may be. Relying on the principle that the pleadings must be assumed to
be capable of being proved for the purposes of an application to strike out,12 I
proceed on the basis that it can be shown that by the actions of persons in a position to bind the Auckland City Council, the Auckland City Council became liable to Schick.
[37] Here it is necessary to distinguish the cost-sharing agreement, and the other asserted rights, from the original Cliff Road contract. Mr Peoples appears from his affidavit to be of the view that payment for the upgrade work under the cost sharing agreement would be made to Schick “using the payment processing provisions of the original contract relating to the palisade wall and stormwater upgrade at Cliff Road”. It could be inferred from this that he considered the arrangements made for the
upgrade work were pursuant to the original Cliff Road contract, and that the alleged
12 See [17] above.
costs sharing agreement was a variation to that agreement. If that is the case, the next step in analysis of the present application would be to decide whether any liability arising under the Cliff Road contract is a liability which is now vested in Auckland Transport under the Vesting Order.
[38] On the other hand, if the cost-sharing agreement which is alleged is a completely separate contract between Schick and the Auckland City Council, as Schick pleads, and if the alleged liabilities in estoppel and quantum meruit are those of the Auckland City Council, as pleaded, it is necessary to determine whether these liabilities are within the terms of the vesting order.
[39] I proceed, as required, on the basis that, as pleaded, the allegations of liability on the part of the Auckland City Council in the fourth to sixth causes of action are separate and distinct from any liability it may have under the Cliff Road contract. If there is an inconsistency between the pleading and the evidence of Mr Peoples, that is an issue for trial. On the other hand, the liability alleged in the seventh cause of action is said to arise under the Cliff Road contract, so must be considered separately.
[40] As stated, the cost-sharing agreement is said to have been an agreement to share the cost of upgrading the stormwater piping in Cliff Road from the
375 millimetre pipe that existed before the July incident to a new 450 millimetre pipe of greater length than the portion of the 375 mm pipe which was damaged. The claims in estoppel and quantum meruit are similarly founded. These allegations do not relate in any way to transport. They relate to stormwater discharge. In terms of cl 12(2)2 of the Vesting Order they do not fall within the definition of Auckland Transport System which is in s 37(1) of the LGACA. The Auckland Transport System is defined to mean roads, public transport services and public transport infrastructure.
[41] Mr Chatwin also says that even if the claimed liabilities are within cl 12(2) of the Vesting Order, they are excluded under cl 12(4)(b) as they are inconsistent with the functions of Auckland Transport under Part 4 of the LGACA, ss 45-46. I need not set out these sections. It is sufficient to say that all relate, as one would expect,
to activities related to transport. The sums claimed relate to repairs to stormwater infrastructure. I agree this is inconsistent with the functions of Auckland Transport.
[42] It follows from this analysis that the liabilities alleged in the fourth to sixth cause of action have not been shown to have vested in Auckland Transport, so the claim to strike out those causes of action against Auckland Council cannot succeed.
[43] As I have indicated, the seventh cause of action is brought under the Cliff Road contract. The Cliff Road contract is described as a retaining wall contract. It involved the building of a retaining wall to shore up Cliff Road. After referring to monies retained by the Auckland City Council under cl 12(3) of NZS 3910:2003, Schick alleges breach of this contract because the Auckland Council is said to have wrongly continued to hold retention monies which it should have released. Judgment is sought as a result. This is a straight-forward claim for breach of the Cliff Road contract. It is an alleged liability of the Auckland City Council. Therefore, it is necessary to determine whether this liability is within the terms of cl 12(2) of the Vesting Order.
[44] The Cliff Road contract was not produced in evidence. From the general descriptions of the work involved under this contract, it appears that much of the work under the contract related to a road. If it related entirely to a road, it would be within the definition of the Auckland Transport System in s 37 of the LGACA. That being the case, the liability would have vested in Auckland Transport. However, the position is not as straight-forward as this might suggest. In paragraph 7 of the first and second amended statements of claim, the civil contracting services to be provided by Schick to the Auckland City Council under the Cliff Road contract are described as being “in respect of a palisade wall and SW upgrade at Cliff Road St Heliers Bay, Auckland (the retaining wall contract)”. Assuming, as I think I am entitled to do, that “SW” means stormwater, the pleading is that the contract covered works not merely involving a road, and thus not necessarily in the definition of the Auckland transport system in s 37 LGACA.
[45] As I have said when summarising the principles to be applied by the Court on an application to strike out, it is inappropriate to do so unless the Court can be
certain that it cannot succeed. Without thorough analysis of the work required under the Cliff Road contract I cannot be certain that the liability under the Cliff Road contract, which was initially that of the Auckland City Council, has now passed under the vesting order to Auckland Transport. This is an issue requiring factual determination at trial.
Outcome
[46] The application is dismissed.
[47] Ordinarily, costs would follow the outcome and be awarded to Schick, as it has succeeded. However, in my view, the Council was well justified in its complaint over the conduct of Schick and an expression of the Court’s disapproval of that conduct is warranted. Had that been the only ground of the application, I would have awarded costs to the Council. Conversely, Schick is entitled to costs on the second limb of the application. In the result, therefore, there will be no order for
costs.
J G Matthews
Associate Judge
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